Since the beginning of the year, investors are able to participate in the Group's successful hotel portfolio and thus also in the development of existing as well as new holiday destinations. We spoke to Peter Krueger about the structure and advantages of the first global hotel fund initiated by TUI.
The TUI Group has initiated an international hotel fund enabling investors to invest in hotel growth with the fund's capital. Why has TUI chosen this path?
Peter Krueger: Prior to the Corona crisis, we already had a successful track record of hotel investments. In financial year 2019, 50 per cent of our total investments of over 1 billion euros went into this segment alone. With the hotel fund initiative we are now re-focusing on growth after a successful restart of our operating business. Our expansion in the hotel segment, will be facilitated by separating the investment in real estate from the management of hotels under our brands . With this asset-right strategy, we will continue to scale up our hotel portfolio in the coming years. Our investment partners benefit from sustainable returns and the increase in the value of the properties, while TUI grows the share of earnings from hotel management and investment consulting fees. A win-win proposition, underpinned by the fund's large growth capital specifically raised for this purpose.
But TUI also contributes properties from the existing portfolio to the fund. Doesn't that weaken the earning power for the future?
Peter Krueger: While selectively a TUI hotel could be contributed to the fund, the hotel fund is rather geared towards growth, i.e. the focus is on the development and acquisition of new hotel properties. The fund hotels would mainly be managed by our hotel brands. In addition TUI will receive a fee for advising investors in identifying investment opportunities. Therefore, for the first time, TUI monetizes its hotel investment capability and expertise.
With the launch of the hotel fund, TUI delivers on both its growth and asset-right strategic initiatives.
Why does the fund focus on hotels outside Europe? And why should investors be interested?
Peter Krueger: Our ambition is certainly to grow globally. But we will grow our portfolio together with our fund partners. It just so happens, that the first group of investors we work with, have an investment preference for diversification outside Europe. There is no reason why a second fund cannot be geared purely to European investments. TUI understands the global leisure hotel space well, given its global presence. Investors can therefore benefit from our investment advice irrespective of regional focus. What we have perceived with this first fund is a high level of fundamental investor interest in the leisure hotel sector.With our integrated business model we can address certain hotel investment risks, for example by providing own flight capacities to more remote destinations.
Can small investors also benefit from the growth opportunities in the international hotel segment?
Peter Krueger: That is an interesting idea. However, our strategic objective is to find scaleable structures. With USD80 trillion, the institutional investor market is the largest pool of funds globally looking for deployment. At the same time we have ample investment opportunities. Bringing both together results in a scaleable win-win proposition. Typically the size of retail funds is more limited, more time consuming and required higher regulatory efforts. Therefore, our first fund is aimed specifically at institutional investors with a long-term investment horizon such as insurance companies or pension funds. Seed investors including one of Germany's largest pension funds have already committed to 40 percent of the fund's equity. You can see that interest is high and so are the individual investment sums. TUI itself will also hold a 10 per cent stake in the fund. For institutional investors looking for stable, good and long-term return opportunities, we are a very attractive partner. Our unique knowledge in the leisure hotel investment sector is therefore of great value to investment managers.